In this installment of UrbanTurf Reader Asks, a reader looks for advice as to whether he should keep renting his one-bedroom apartment for $1,720 a month or buy something in the $270,000 range.

I currently pay $1,720 a month in rent for a one-bedroom apartment not far from Connecticut Avenue on Columbia Road. I want to buy in the $250-270,000 range and it would be through FHA financing.

I get that rent goes nowhere but paying a mortgage with interest doesn’t seem that awesome either, especially with condo fees, maintenance, and renovations on top of my monthly payments, and the prospect that DC’s real estate market doesn’t stay as healthy as it has been—all leading to a net loss down the road.

I understand that I’d have to move way out for a house in my price range, but it’s a reality I’m willing to accept if it’s a good value. I have also seen some one-bedroom condos around Columbia Heights in that price range. Anything more than $270,000 and the monthly mortgage payments would be too high for me. I am curious to hear the opinions of UrbanTurf’s readers as to which way they think I should go.

Post your thoughts in the comments section. If you would like to submit a question for UrbanTurf Reader Asks, send an email to .(JavaScript must be enabled to view this email address).

This article originally published at https://dc.urbanturf.com/articles/blog/urbanturf_reader_asks_rent_for_1720_or_buy_for_270000/3688

21 Comments

SGF said at 3:48 pm on Monday June 20, 2011:

Well, your monthly payments would be higher if you bought, but it sounds like you are leaning towards it. The thing is, the only house you’d be able to buy in DC would be a short sale or foreclosure.

dally said at 3:54 pm on Monday June 20, 2011:

Buy. I think Col hts and Petworth have some good listings in your price range

Colin Shackleford said at 4:09 pm on Monday June 20, 2011:

There is no hurry in the real estate market. DC will have downturn before it is all said and done (in my opinion). Save up, look around. Negotiate hard! We have a historic glut of housing (DC included). I’ve been looking at houses since 2004 and one thing is certain: The type (location/size etc) of home I can afford keeps increasing and the cost keeps dropping. In 2006/7 I was looking in the $270k range, now I am looking at the same, if not better, quality home but now i am looking in the $150k range.

If you don’t remember anything else remember this the only number that matters is your monthly payment. Principal and interest fluctuate (inversely) and at some point this artificial economy (.25 fed funds rate) will have to stop and when that does… Truthfully, NOBODY KNOWS WHAT WILL HAPPEN. But I doubt it will be positive for housing values. Only buy if your purchasing for the life you want. Not: good enough, what you can afford.

This housing down turn is going to last for several more years at least. And don’t by that DC housing values aren’t falling, Maybe Washington, DC prices are falling but the regions prices are falling.

Also, Federal employee could loose their jobs if they walk away from their mortgages. That is another example of false upward pressure on prices.

Be smart, there is nothing wrong with renting and saving and/or investing. After all we have finite reasources and that Home Depot money could buy you investments instead. Make some investments that pay dividends. Once you get those monthly divided checks in the mail decided if you want buy a home.

Take a real estate class or two before buying, after all your about to spend $270K (*Not including Interest*).

Thumb Rule is = divide the purhcase price of the property by the prevailing annual rent for a like property (multiple monthly with 12 etc.). If the quotient is 15 or lower, buy. If more than 15, noper.

In your situation, 275000 / (1720 * 12) = 13.32. No brainer.

JD said at 4:39 pm on Monday June 20, 2011:

It isn’t a no brainer as he would have to move area’s to be able to afford to buy a place.
That changes the rent amount and the total equation.

H Street Landlord said at 4:42 pm on Monday June 20, 2011:

Better yet buy a 2 or 3bd in Trinidad, Rosedale, cheaper parts of Petworth etc and rent out the spare rooms. You can live almost for free but build up a ton of equity.

IA said at 4:56 pm on Monday June 20, 2011:

Hey,

I was in the same boat as you deciding on whether to rent or not. I recently bought. I think not only is it a good investment, but you can write off the interest and the RE taxes. That alone was going to save me about 5k a year in taxes. It also depends on what area you want to live in. I had to move from Bethesda to Silver Spring, but I personally didn’t mind it. You can always rent out another room. Interest rates are very low and I think it’s a great time to buy. Yes, there is uncertainty in the future but nobody can predict that. I believe in building up equity, but that’s just me.

Rob said at 5:55 pm on Monday June 20, 2011:

Unless you’re unhappy with your current place, I would keep renting. Far too many people buy for all the wrong reasons. Recent research shows that you usually come out ahead by renting instead of buying (as long as you invest the difference in cost, rather than just spending it—see http://www.kansascityfed.org/publicat/econrev/pdf/10q4Rappaport.pdf for the research). Plus the DC real estate market is due for a downturn—people in the housing market are acting the way they did during the bubble, which is always a bad sign.

Mark said at 6:19 pm on Monday June 20, 2011:

I’m in the same place. When you compare renting to owning, make sure you add in the monthly interest cost (minus tax deduction), real estate taxes, and mortgage insurance. (Don’t include principal in the comparison, since you’re trying to compare the “down the drain” money.)

I’m still in disbelief at how high prices are here. I make pretty decent money but I’m priced out of just about every decent neighborhood in the city. Especially without FHA financing.

I think prices in this area area are buoyed up by federal employment and wages; if a change in government results in a smaller federal workforce, then expect home prices in the area to drop.

Also as mentioned above, housing prices are sensitive to the interest rate. If interest rates go up, housing prices will have downward pressure.

Owning a home may make sense for a lot of other reasons (forced savings, sense of security, etc.) but is not a great investment these days.

If you feel like you’re crazy, you’re not alone. I’m looking at the housing market every day and wondering who is spending all of this money on all of these homes? It boggles my mind.

Condobuyer said at 9:05 pm on Monday June 20, 2011:

has anyone used the nytimes tool for this kind of decision

Condobuyer said at 9:12 pm on Monday June 20, 2011:

Just a couple of more observations:

Why does everyone mistakenly seem to think that “rent goes nowhere” - isn’t it paying for shelter, ie a roof, space, accommodation etc, and the property taxes (etc) a tenant is not paying.

In the comment above Mark alluded to these extra costs (insurance, maintenance, interest) - but says not to include these in a true cost comparison? - I really have not followed Mark’s argument.

In my humble opinion there is no money “down the drain” for a rental (tenant) or for an owner. Granted there are costs associated with each scenario, but the important thing is that in each scenario there is something received.

Why doesn’t anyone complain that paying taxes on food or other consumer goods is “money down the drain” (or tips for that matter)?

In any case, good luck to the condobuyer (i’m in the same boat).

I’ve also noticed that the potential buyer is considering (and maybe comparing?) potentially very different neighborhoods, where other factors than monthly cost would come into play.

East H said at 9:13 pm on Monday June 20, 2011:

Don’t listen to the people who say you can’t buy in the city. The best ROI will be in neighborhoods that some people still consider transitional— I agree with H Street Landlord that Petworth, Rosedale and Trinidad are the best bets, not necessarily in that order. Maybe Silver Spring.

From your question, however, you don’t strike me as somebody who would want the responsibility of full on home ownership that comes with purchasing a single family home. Buy if your heart’s in it. Don’t do it for the money.

I would never buy a condo in DC, but that’s me.

Millennia said at 11:29 pm on Monday June 20, 2011:

@East H, I was wondering, why would you never buy a condo in DC?

Decisions said at 1:27 am on Tuesday June 21, 2011:

I agreed with listening to your heart. Where you live is as much about lifestyle as it is about money.

Do you want a bigger place and the suburban lifestyle? If so, go for it. If not, how much will you lament the decision if the $$$ doesn’t pour in from the investment? That perfect investment property might not be the perfect home for you. No investment is risk free, buy buying a home because you love it and want to live there for a number of years helps to temper the risk.

As for staying the City, you know the trade off—less space. Will a one bedroom meet your needs a few years from now? If not, renting might be better now to save for a bigger place in the longterm. I own my place (well, about 25% me, 75% the bank), and I’m all in favor of buying, but it’s not perfect for everyone at every stage of life. While maybe I’ll sell before then, I could see myself living happily here for the next 30+ years. It’s over a long time horizon that buying makes the most sense.

SL said at 9:04 am on Tuesday June 21, 2011:

If you think you’ll be in DC for the long haul (at least the next 5 years) I would buy. One of the best reasons: freezing your monthly payments at a set rate with a 30 year mortgage. Over time your mortgage payments will look better and better in comparison with market-rate rents, which are increasing a lot in DC.

I agree with buying in a transitional area - with your budget, here’s a listing I think would be great http://www.redfin.com/DC/Washington/804-Taylor-St-NW-20011/home/39956304 - it’s a 1BR condo on the top floor of a newly-renovated building in Petworth in an excellent location. Within 4 blocks you have the metro, the Petworth Farmer’s market, Qualia coffee, Domku, the Safeway, etc. I live close to here and love it - I also think it’s a lot less edgy than a lot of other transitional areas; you can walk to quite a lot, even the Columbia Heights metro is only about 15-20 minutes away, so all the new spots on 11th St NW are in easy walking distance (Red Rocks, Meridian Pint) It’s a decent-sized building that is bringing lots of younger first-time home buyers to the neighborhood. Plus, it’s totally renovated which should keep you in budget.

Hanoomaan said at 11:36 am on Tuesday June 21, 2011:

Funny how many people have how many diff views.

The poster’s question seemed purely financial to me - straight numbers make sense or not from rental in place A to ownership in place B. Read what he says - he can move if it makes sense (value is the word he used) - its nothing about emotions.

I still stick by my thumb rule: 13.3 ratio is fantastic. Plus rates are so so low.

And for all the gloom and doom and bubble and uncertainity guys, all you have to do is look at inventory - it is super low. That means people multi-bid on one property, then you have activity, then you have a bubble. But the underlying cause is inventory - too many people chasing too few good properties. In our area (DC / MC / FFC / AR / AL) you have to remember there are diplomats, and high level federal workers and the “black coat” guys, all of whom pull six figures and the federal ones will ****lose their jobs**** if they default on their mortgage.

This place has its engine going full steam - the real problem is not whether to buy, but finding something you like.

With interest rates so low, the cost of borrowing is super low. And if you follow the model of those who say rent and invest the money, where is the yeild? You are still better off paying a mortgage at < 5% than paying rent and making 2% yield.

Other considerations: Housing is the US is massively subsidized by the Fed Gov - via loan guarantees (Freddy, Fannie, FHA) and via tax breaks. This circus is not going to last. Soon as the election is done, its going to become real expensive to buy. Guess what that means? The guys who bought, their costs go up. Gues what that means? Higher rent.

I think 2011 is a unique opportunity. Buy and then rent to the gloom and doom guys.

-Hanuman, the mover of mountains

StringsAttached said at 2:57 pm on Tuesday June 21, 2011:

There is no right or wrong answer to this question due to the fact that no one can predict the future.

But in addition to all the great advice posted above…I noticed that you mentioned having to “move way out” to get a home in your price range. My advice would be to rent “way out” for 6-12 months in the area you would have to move way out too and see if you really like living further from the city. Since you can afford the housing out there, rent should be cheaper than your current costs. You can stash that money away while on your trial run.

At the end of the day though it comes down to making a logical decision. Forget the emotions and the unknown. If you will still be in the DC area five years from now like an earlier poster mentioned, yes, I would recommend buying. If you’re not sure don’t. The worse that could happen is you saying “darn, i should have bought 4 years ago”.

Happy decision making!

Genifer said at 6:13 pm on Tuesday June 21, 2011:

I also noticed that you mentioned having to â€œmove way outâ€ to get a home in your price range. Are you sure you’ve factored in the additional costs for that (e.g., commuting costs both financial and mental, and what it will cost and feel like to (possibly?) be farther from friends/family)? As one who recently moved from Capitol Hill to Rockville, I know it is a HUGE lifestyle change. If you’re miserable in your new neighborhood, then no, buying is not worth it. Make sure you know what you’re getting into.

East H said at 3:04 pm on Thursday June 23, 2011:

@Millennia: about buying a condo in DC, I wouldn’t because condo prices and fees are typically through the roof, I don’t like the idea of being boxed in by other owners, I like freedom to do what I want with my place, I think there is much better value to be had in single family homes in a transitional neighborhoods (and I feel confident that I can handle most maintenance myself at a large savings).

I should have been more clear—I know many other people are very willing to pay condo fees to have things taken care of, and it’s worth it for some. I was only speaking for me personally.

Scoot said at 9:31 pm on Thursday June 23, 2011:

Definitely a tough decision - I bought a condo in that price range (a touch higher, actually) and can’t say I regret the decision, but looking back I probably would have been comfortable renting. You should factor in condo fees, property taxes, utilities like electric (if you didn’t pay them in your rental), mortgage insurance, general maintenance and closing costs (I was hit with a lot of miscellany closing costs, even though the seller paid for most of them; it’s good to have a $5000 cushion on top of what you put down).

On the other hand, I get about $2500/year in various tax deductions.

If you are comfortable staying in your home for, say, 5 years or more and think you might be able to score a recently renovated 1 bedroom unit in Columbia Heights (doable) or other transitional area with a low condo fee, then I say pull the trigger if you do all your calculations and the difference is only a couple hundred dollars per month. In a transitional area, you absolutely will get a good return on your investment in a few years. If you’re lucky like I was, your condo will appraise for a lot more than its purchase price, which is like “instant equity”.

Owning can a drag sometimes, but I like the idea of not being dicked around by landlords or (especially) property management companies. I like having control over my space. I like being part of a condo that takes pride in the building and wants to see it get better. And I think there is something to be said for feeling more in touch with the community and invested in its growth and well-being when you are an owner.

Best of luck with your decision!

DomusDC said at 9:09 am on Thursday July 14, 2011:

Hanoomaan said at 4:18 pm on Monday June 20, 2011:

Thumb Rule is = divide the purhcase price of the property by the prevailing annual rent for a like property (multiple monthly with 12 etc.). If the quotient is 15 or lower, buy. If more than 15, noper.

In your situation, 275000 / (1720 * 12) = 13.32. No brainer.

This actually gets a little more complicated for condos which is why I recommend our clients run a simple pro-forma to determine the actual yield they’ll get if they buy and rent a condo. The key isn’t gross rent, it’s net. So let’s assume a $275,000 condo will rent for $1720. That’s $20,640 annually getting your 13.32 multiple. That’s gross. Here’s net: